Ask the Expert: What Mortgage Is Best If You Expect to Move in Five Years?

If you’re expecting to be transferred within five years, an Adjustable Rate Mortgage (ARM) may be a smart choice. These loans typically offer a lower interest rate during the initial fixed period, which often ranges from 3 to 10 years. For homeowners who plan to sell or relocate before that period ends, an ARM can provide valuable savings on interest and monthly payments.

Here’s how it works: With an ARM, you’ll lock in a lower rate for the first several years. After that, the rate adjusts annually based on market conditions. Because you’re expecting to move before the adjustable period begins, you avoid the risk of rising payments while enjoying the benefit of lower initial costs.

Compared to a traditional fixed-rate mortgage, where your monthly payments stay the same for the life of the loan, an ARM gives you a cost advantage in the short term. That can be especially helpful if you’re budgeting for a new city or saving for your next down payment.

That said, it’s important to read the fine print. All ARMs come with rate caps, which limit how much the interest rate can increase after the fixed period ends. If your move is delayed, you’ll want to be sure you can afford potential payment increases.

Also, check whether your ARM has a prepayment penalty, which is a fee charged if you pay off the loan early. Not all ARMs have them, but it’s worth confirming before signing.

For some, ARMs are also useful even if they plan to stay longer. Homeowners with seasonal or commission-based income might take advantage of lower monthly payments during the year, then make lump-sum principal payments with bonuses or extra earnings. This approach may even allow you to refinance before the adjustable period begins.

Whether you’re planning a cross-country move or just want flexibility in your budget, an ARM could be a good fit. Just make sure you understand all the terms, fees, and how the adjustment works. A knowledgeable lender or financial advisor can help guide you to the right choice.